Mortgage Rates Slightly Better

Mortgage rates moved tentatively lower today as it was another good day for the bond and mortgage markets - however do not read too much into it. The pace was only slightly better than yesterday when it was all but undetectable. To those expecting more improvement based on trading levels in the bond markets that drive rates, it might seem a bit frustrating.

No doubt it is nice but it is mostly short-covering ahead of Janet Yellen's speech tomorrow on the economy and the long three day weekend that begins at 1:00 tomorrow when the bond and mortgage markets close. Understandably though, lenders tend to error on the side of caution ahead of an extended holiday weekend. The bellwether 10yr still in its new trading range and has not cracked any significant technical barriers (above the 200 day average and all other shorter term averages).

Improvement in mortgage prices pushed on the surprising weaker April existing home sales and the soft Philly Fed business index that measures manufacturing in the Philadelphia Fed district. Weekly claims were OK and April leading economic indicators better than estimates. The housing sector is still struggling due to the lack of inventory, even though inventory levels in April did increase from March's data. Inventory levels have taken the blame for soft sales, that may change when we see May inventories as spring time usually increases listings.

Earlier this week a number of media, analysts and economists were handicapping why interest rates had spiked so quickly. Now the talk is that the Fed is not about to increase rates at least until September, but I am still stating that I do not see any increase till 2016. What we have seen without much warning was German interest rates sky-rocketed and US treasuries followed. Investors were heavy on bonds in Europe and in the US. The reasoning that many were thinking was because the ECB QE was working so well that Europe's economies were about to stabilize and begin to improve.

In summary, rates improved - but only enough to get us near Monday's closing levels. While we will all take the gains, at this point the movement is not enough to get too excited about. We are still about 100BPS under late April's pricing, and need market sentiment to shift. With tomorrow's early close for the Memorial Day weekend, banks often get conservative. Right now, volatility will continue into next week so I am staying with a LOCK suggestion if closing within the next 30 days.